1. What is Covered Warrant (CW)?

• • Covered Warrant are securities that have collateral assets issued by Securities Companies, giving owners the right, but not obligation, to buy (call option – call CW) or to sell (put option – put CW) the underlying securities at a predetermined price, before or at a specific time in the future, or receive the difference amount between exercise price and the price of underlying securities at time of execution.
  • Based on the current regulations of State Securities Commission and Stock Exchanges, investors are only allowed to buy call CW.

 

2. Basic information

Underlying securities	:	Underlying securities can be stocks, market indices or ETF certificates. At the first stage of CW’s implementation in Vietnam, only stocks are chosen to be underlying securities.
Conversion ratio	:	Conversion ratio shows the number of CWs that investors need in exchange for a unit of underlying security. For example, if the conversion rate is 10:1, investor needs to own 10 CWs to buy 01 underlying security.
Maturity period of CWs	:	The minimum maturity period of CWs is 3 months and maximum is 24 months.
Expiry date	:	The last day that CWs can be traded (2 days before the maturity date). In case CWs are unlisted as the underlying securities are unlisted, the expiry date is the last trading date of underlying securities.
Maturity date	:	The last day that CW holders can exercise CW.
Exercise style	:	At the first stage of CW’s implementation in Vietnam, exercise style can only be European style. According to this style, CW holders can only exercise CW on the maturity date.
CW price	:	The amount of money investors spend to buy CW.
Exercise price	:	Price at which investors execute the call or put option of underlying securities when the CW expires
Payment price	:	The average price of underlying securities in 5 previous consecutive trading days before maturity date.
Payment methods	:	Cash payment is the difference between the exercise price and the underlying securities price.

 

3. How to purchase CW?

• • Primary market: Register to purchase CWs at securities company which issues CWs.

Japan Securities Co., Ltd is not issuing CWs, hence, our company do not provide CWs purchasing service in primary market.

• • Secondary market: CWs, after being issued, will be listed on Ho Chi Minh Exchange. Investors can buy/sell CWs as normal securities or can hold CWs until maturity date. They can use their securities trading account to buy/sell listed CWs on Stock Exchange.

Japan Securities Co., Ltd’s Clients can perform CWs transactions on secondary market like normal securities transactions on Ho Chi Minh Stock Exchange.

 

4. CWs trading methods

Trading time, order matching method, orders, pricing principles, trading unit of listed CWs are similar to normal securities.

However, there are some different rules:

• • Price unit: 10 dong for all prices of CWs
  • The ceiling price/floor price of CWs on a trading day is based on price fluctuation range of underlying securities and as the formula below:

Ceiling/Floor price of CW = Reference price of CW +/- (Underlying security x Price fluctuation range) / Conversion ratio

 

5. Right execution

Investors can sell listed CWs on Stock Exchange or keep until maturity date. At the maturity date, investors who still keep CWs will receive an amount of cash difference between payment price and exercise price of CW following below formula:

Amount of cash = (Number of Owned CWs/ Conversion ratio) x (Payment price – Exercise price)

In which:

• • Payment price: The average price of underlying securities in 5 previous consecutive trading days before maturity date
  • Exercise price: defined at the buying time and unchanged by time
  • Payment to investors must be completed within 05 working days since investors exercised CWs or from maturity date onwards.

 

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